Abstract
Emissions trading scheme (ETS) has been adopted by an increasing number of countries and regions for carbon mitigation, but its actual effect depends on specific program design and institutional context. Before launching the world largest ETS, China experimented with seven independent regional pilots, whose effects are only indirectly explored. Here we provide firm-level evidence of the innovation effect directly from China’s pilot emissions trading, based on latest patenting information and a quasi-experimental design. China’s pilots increase low-carbon innovation of ETS firms by 5–10% without crowding out their other technology innovation. The increase from ETS firms accounts for about 1% increase of the regional low-carbon patents, while a similar increase from large non-ETS firms is also induced by the ETS. Most importantly, the effect is not associated with permit price, auction, or firm characteristics, but is driven by mass-based allowance allocation. A rate-based approach, however, is adopted by China’s national market.
Highlights
Emissions trading scheme (ETS) has been adopted by an increasing number of countries and regions for carbon mitigation, but its actual effect depends on specific program design and institutional context
The rate and direction of innovation are essential for achieving climate mitigation targets by affecting the availability, cost, performance, and timing of low-carbon technological change
We matched for each ETS firm a similar non-ETS firm as its counterfactual, to control for factors other than the ETS that might have affected innovation
Summary
Emissions trading scheme (ETS) has been adopted by an increasing number of countries and regions for carbon mitigation, but its actual effect depends on specific program design and institutional context. We provide firmlevel evidence of the innovation effect directly from China’s pilot emissions trading, based on latest patenting information and a quasi-experimental design. China’s pilots increase lowcarbon innovation of ETS firms by 5–10% without crowding out their other technology innovation. 1234567890():,; Emissions trading scheme has been an increasingly popular policy for climate mitigation: ETS programs cover almost. The popularity of ETS may help to link national and regional climate policies for more efficient mitigation globally[2]. Evaluation of the existing ETS programs is important to the advancement in instrument choice and policy design for climate mitigation
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